Financial Impacts of Data Errors

By: David Loshin
07-May-2010

On Thursday, May 6th, sometime between 2:20PM and 3:00PM, panic appeared to hit Wall Street, as the Dow Jones Industrial Average lost a jaw-dropping 1000 points, or about 9-10% of its value. While the market appeared to make up some of that loss by the end of the trading session, after hours the NASDAQ market announced that it was canceling trades for hundreds of stocks with price deviations of more than 60 percent between 2:40PM and 3:00PM from their 2:40PM levels. So what happened?

Apparently, a computerized sell-off was started as a result of a typographical error that triggered program trading. One possibility was that an order was placed to sell $16,000,000,000 worth of futures instead of $16,000,000, destabilizing the market and triggering sell orders. With the Dow down by 1000 points, it still managed to recover to end up down 347 points, which translates into $462,000,000,000 based on the market capitalization of the Dow Jones Total US Market Index. Quite an impact that seems to be attributable to one data error!